The Greek Financial Crises – What is Money – The Socjourn

This article is excerpted from the book The Rocket Scientists’ Guide to Money and the Economy. More information is provided below.

Money, money, money, money.

Money makes the world go round, so what’s the problem with money? Well, money is the root of all evil, or so we are told.     It is the bane of our existence. It is the source of our despair, especially if you’re Greek and can’t get enough money to pay the bills, or even eat. Money is bad, and that’s the bottom line.

But is money really the problem?

If you ask me, not really. There is a problem, and that problem is not with money per se, but with accumulation. Accumulation is the problem. Accumulation is what is causing debt, default, and even the growing ecological, political, and global crises. Accumulation is the heart of the issue! Accumulation is why, despite the fact that we (and by “we” I mean the people of this earth) have amazing productive potential, not everybody on this earth can afford even the modest price of an apple. Indeed, because of accumulation, a lot of people on this earth don’t even have the money they need to buy food and decent shelter and because of that, a lot of children on this earth go hungry and starve, and that’s most definitely a crime. So you see, the problem is accumulation.

But, how does that work? And what can we do about it? Well, as it turns out, there are answers to those questions (and more that you may have), but first you have to understand just exactly what money is. If you understand what money is, a light shines and suddenly the answer to many questions come into clear focus. If you don’t understand money, nothing that’s happening in the world will ever make any sense. So, to get us started on the road to economic enlightenment, let’s take a few thousand words and talk about money, the economy, and accumulation. I promise by the end of this short little exerpt you’ll have deepened your understanding of money and taken a major step towards full front enlightenment.

Alright, so, the Greek financial crises, and the lack of cash in the pockets of the people of Earth, is not for reasons that you might think. However, in order to understand why so many people don’t have the money they need, we first have to understand the nature of money. That is, first we have to understand what money is, and that’s easy. Let us start by saying that money is not the paper it’s printed on. Money is not gold, it is not silver, it is not platinum, and it is not those shiny little rocks that people put on their fingers and attach to their earlobes to make others go all “ooh” and “aah” and stuff like that. Money is not a concrete thing at all. In fact, when you think about it, money is simply an idea, and it’s an idea that, despite what some people might want you to think, is not that hard to understand.

It’s simple really. When you boil it right down to essence, money represents time. Time is money, they say, and that’s totally true, though there is a bit more to it than that. Money does represent time, but not all types of time. Money has a very specific reference and that is work time.[2]

Money represents work time.

It’s obvious, right? You work an hour you get paid for an hour. If you stand around and do nothing, money doesn’t fall from the sky. You only get money when you work. Therefore, money is work time. But of course, even that’s not wholly specified. While it is true that money does represent work time, it’s also true that money doesn’t just represent work time. Money represents a very specific type of labor. The fact is, I don’t get paid money for working in my back yard. I only get paid money when I’m doing something for somebody else. When I do something or build something or provide a service that somebody else finds useful, then I get money in exchange. Although I might fantasize about it, you are not going to give me a single penny for working in my garden growing flowers for my kitchen table. However, I might be able to convince you to give me a few pennies for a flower I’ve grown for your kitchen table.

You see how that works?

Money, money, money.

The definition of money is this:

Money represents time spent working for someone else. And if we define “time spent working for someone else” as labor time, then we can say:

Money = Labor Time

The Economy

Now, while the whole “money = labor time” thing might not be that obvious to you at this point, it will be in a moment. To get a better idea of what money is all about, all we have to do is take a look at money in an economy.[3]

And what is an economy?

Well, an economy is basically the formal exchange of money and, since money = labor, an economy is basically the formal exchange of labor (i.e. time spent working for someone else with the expectation of fair exchange).

Simple.

Whenever two or more people get together and do something for each other in exchange for something (usually money), you have an economy. As you can see from this, an economy is a fundamentally social thing. Economies emerge out of human interaction, and are designed to fulfill human needs. When you are engaged in economic activity you are working for, and with, other people. No social activity? No social Exchange? No economy.

Now of course, there are different types of economies and not all economies need money to function. That is, not all economies are monetized. In our modern world, the official economy,[4] that is the economy that is recorded, monitored, and fiercely policed by those in power, does use money. However, beneath that official economy there are other economies. There is the underground economy, for example. The underground economy is also a “monetized” economy, but it’s not recorded and taxed like the official economy. Alongside the underground market economy there is also the informal economy.[5] When I traded a complete set of my books to a young man who helped to clean the windows in my house, there was an exchange of labor, but it wasn’t monetized. It was barter. The point here though is not to go into detail about the different types of economies but to simply point out that an economy basically involves the exchange of labor power. Whether that labor is represented by money or barter, or is recorded or not, is irrelevant. The point is, an economy involves the exchange of labor.

We can see this quite clearly if we simplify things and look at an economy of, say, one thousand people. In this simple economy, everybody does something useful for somebody else. One person plays guitar, another sings, another builds houses, one runs a farm, another is into computers, another bakes bread, another processes animals, and so on. They all have a skill (or skills), they all have things they love to do, and they all get up every day and apply those skills in their daily life. In our small economy of one thousand people, each individual has some specialized talents and abilities and they bring these talents and abilities to their community, and that’s great because not everybody is the same. Not everybody likes to build things, not everybody likes to sit all day and write, not everybody likes animals, and so on. But that’s OK because in an economy, we can all exchange with each other for things that we can’t otherwise do ourselves.

And how do we do that?

How do we exchange our labor?

Well, as I said above, we can do that with barter or we can do that with money. Barter (i.e. I build you a house, you give me a lifetime supply of hamburgers) is fine as far as it goes, but it’s quite limited because barter is neither efficient nor flexible. Maybe the local carpenter is a vegetarian and if so, how is the meat packer going to get a house built when the only thing he has to exchange is a substance that causes the carpenter to retch uncontrollably?

You see the problem.

Enter money.

Money, money, money.

Money is an improvement over a system of barter because it abstracts labor. When the economy is based at least partly on money (i.e. partly monetized), then your options for exchange are expanded. Money basically creates a more fluid and efficient system of labor exchange. Instead of paying the carpenter in dead meat, the meat packer now pays in cash, which the carpenter can then use to buy wholesome veggies. It’s a win-win situation. The meat packer benefits because now he can exchange with the carpenter even though he has nothing of interest to barter. The carpenter also benefits. For him, money is better since he can take that and buy whatever he wants. He can buy food, he can buy a new car, a tool, or whatever. In this sense, money can be seen as an economic lubricant or like blood in the body. As a measure of labor power, it simply makes economic exchange more efficient and fluid.

Money gives life to the social fabric.

So, there you have it.

Money is simply abstracted labor.

Money allows us to exchange labor power with each other in an efficient and fluid way.

Put this way, money hardly seems like the root of all evil as so many people like to think.

The Source of Money

So, if money is labor, and if the economy is nothing more than a way to exchange labor, then where does money come from? Well, it doesn’t appear out of thin air; but it’s also not that hard to understand. Money comes into being in a two-step process. First, somebody makes it. If it is paper money, we put paper through a press with special inks and so on. If it’s metal money, we stamp it with a logo and some numbers. Then, we agree on a value. It is as simple as that. It is important to note, whatever you’re using for money, whether it be gold or lead or stone, doesn’t matter. All that’s important is that the people who are involved agree that this piece of paper or that lump of metal represents a certain amount of labor time, i.e. that it has a certain value, and that’s all there is to it. Once you agree that you are going to abstract labor and pour it into some kind of symbol, all you need is a symbol to attach it to, and general agreement about the value of the symbol, and there you have it.

It’s all a question of concordance.

If I hand you a piece of blue paper and tell you it’s worth one thousand labor units (assuming one labor unit is one hour of labor) and you agree, then we have created money.

The Value of Money

I suppose the question that arises now is, how do we determine the value of money? That is, how do we determine how much labor power is represented by our instruments of exchange? Well, obviously, whatever it is we are using as an instrument to convey value, the value isn’t intrinsic to the instrument. That is, a piece of paper isn’t automatically worth one thousand labor units. That much is glaringly obvious when it comes to something like paper money. A small piece of off-white paper, printed in a huge mill, with automated machinery, at economies of scale, is probably worth something in the order of .001 cents. The same can be said of other instruments of exchange, like the gold, silver, and diamonds that have been made to hold value over the centuries. No matter what anybody tells you, gold has no intrinsic value. It has a small labor value, which is the total amount of labor that went into extracting it, but it’s worthless over and above that. It is only when “we” agree that gold, paper, shiny white rocks, or whatever are worth “something more” that these things take on a monetary value over and above the value of the labor that went into processing them.

And how do “we” agree that something has a value?

How do we add value to money?

Well, although there are people who would have you believe such, it’s not black magic and it’s not rocket science. As noted above, the actual labor value of money is derived simply from the amount of labor that we (and by “we” I mean those involved in the exchange) agree it represents. And interestingly enough, what we agree to is not random. The value of money, or more accurately the value of all money in a given society, is basically determined in relation to the amount of labor being exchanged in an economy. I know it might sound complicated, but it’s not.

It works like this.

Say, for example, you have a small economy of one hundred people and you want to monetize (i.e. add money in a way that displaces barter as a primary form of exchange) that economy. How much money will you introduce? Well, you want to introduce exactly as much money as will represent the total labor output of the one hundred people in the economy. For example, if you measure each hour of labor as one unit of labor (one dollar/unit = one hour of labor), and if most people work four hours a day, seven days a week, then in order to fully monetize our little economy we would have to introduce about one thousand four hundred and sixty (i.e. 4 x 365=1,460) units of money per person per year to represent an entire year’s worth of the labor of our small society. For our small economy of one hundred people, that would amount to about one hundred and forty six thousand units (1,460×100=146,000) of money circulating in the economy.

As for individual pieces of money, their value is determined in relation to the total value of money in the economy. Assuming you’re starting fresh and with no history of “inflation,” how much an individual piece of money is worth would depend on what fraction of the total it represented. You could, if you wanted to, circulate the required 146,000 units of money in our small economy using 146 thousand-dollar bills; in that case, each bill would be worth 1,000 labor units. Or, you could break it up and circulate it as 146,000 one-dollar bills; in that case each bill would be worth a dollar. Or you could do a combination, in which case you’d have to stamp the bills so people would know the value of each. Regardless, the value of the individual bills is only meaningful in relation to the total labor output in an economy. In other words, in order to determine the value of money in an economy, you have to look at the amount of labor in the economy as a whole, and then divide the amount of money into that.

General

As noted above, there are many benefits to a monetized economy; however, there are also potential problems. In complex economies it can be hard to determine the exact labor value of something and therefore hard to determine exactly how much to pay for a single item. For example, it’s easy to know how much a loaf of bread costs. Say, for the sake of argument, that a baker with a small oven bakes nine loaves of bread in three hours including clean-up. In that case, and assuming one hour of labor is equivalent to one unit of money, each loaf of bread will be worth about .33 units of money (it works out to about three loaves an hour of labor), plus whatever the flour, yeast, butter, and heat for the oven cost. However, it’s not so easy to determine how much labor goes into a computer chip. There is design, engineering, manufacture, distribution, sales, and so on. To be fair to everyone involved, all the labor that goes into the manufacture of a chip must be factored into the actual cost of the chip. That is a complex equation the answer to which, I would think, can only be estimated.

In addition to the problem of estimating the amount of money to be paid for items, there may also be a problem with self-regulation. Maybe people will not work the required hours for the money given to them to represent their labor power. Maybe people will get 10,000 labor units of money for a year of labor, but only work 5,000 hours. This might be especially true of young adults who may be more interested in partying and boinking than working and contributing to society. The problem, however, is likely minor and relatively insignificant in an emotionally and spiritually mature society and could probably be solved simply by revising our socialization process and emphasizing the true meaning of money (i.e. as a container for labor), the need for mutual contribution to the common good, gratitude for what others do for you, etc. in other words, it is not rocket science.

Accumulation

As simple as the problems of determining the price of commodities and motivating people to contribute might be, there is a bigger problem with money that is not so easy to deal with. This problem, as we will see, causes huge distortions and failures in the general fabric of life in our little global community. This problem is accumulation.

And what is accumulation? Well, accumulation basically refers to the practice of accumulating labor power. In concrete terms, it is the practice of taking somebody’s labor and, for example, putting it on the shelf in your house. Nothing wrong with that: we all do that, right? When I went to South Africa with my family, we bought a lot of handicrafts from the artisans down there. We exchanged our money for their labor (i.e. the handicraft that they had created), and then we put their labor on the walls of our house. Although the artifacts on our book shelf look like artistic objects, really what we’ve done is accumulate labor. There is nothing wrong with that, as long as the exchange was fair. It is nice to surround yourself with fine works of art and handicrafts.

Of course, some things are easier to accumulate than others and, by the same token, some things are impossible to accumulate. Even though my wife exchanges money for a back massage, she cannot accumulate the massages she gets. In addition, there are some limits on the accumulation made possible by barter. My house can only contain so many elephant carvings and tribal masks before it starts to look cluttered and messy, or I have to buy shelves and storage. It can be done, but it’s difficult and this difficulty of accumulating labor generally makes accumulation a non-issue in societies based on barter.[6] You work for what you need, accumulate a few things to make your life more pleasant, and it doesn’t go much farther than that. In a barter society, there is a built-in limitation on accumulation. There is really no point in accumulating bread, hammers, computers, or handicrafts beyond a certain point because beyond a certain point it looks, and feels, absurd.

Ah, but in a monetized economy it is a different story. In a monetized economy, there is no such built in limit to accumulation. In fact, in a monetized economy, you can accumulate as much labor power as you want. You can print a thousand-dollar bill, a million dollar bill, a billion-dollar bill, it just doesn’t matter. Since the value of money (i.e. the amount of labor it represents) in a monetized economy is symbolic and based on a simple act of agreement rather than a reciprocal exchange of goods, you can accumulate as much labor (i.e. money) as you want. In fact, in a monetized economy you can even make accumulation, rather than the social exchange of goods and services, the economic goal, and even the entire point of existence! As long as somebody believes you that a thousand-dollar bill is worth so many units of labor, and as long as you are willing to worship the idol of value and ignore all other considerations, like poverty, inequality, violence, environmental destruction, and so on, you are set to go.

The question now becomes, why would you want to do something as silly as that?

The Fall

Well, in order to understand why you’d want to make the accumulation of money the entire point of your existence, you have to understand something about the nature and possibilities inherent in accumulated labor power, and the best way to understand that is with a little story. Let us imagine that one day, sometime after the monetization of our small economy, somebody gets the idea to charge just a little bit more for their labor than is strictly fair. For example, instead of charging .33 labor units for a loaf of bread (the actual labor cost of the bread), the baker (let’s call him Joe) now starts to charge .66 units (twice the real cost), or .99 units (three times the real cost), or whatever. Joe surmises that it is not much really, and it doesn’t seem like it’s going to hurt anything, or anyone, so what’s the harm with accumulating a little extra labor? “What’s the problem with taking a little ‘profit’ for oneself?” he asks himself.

Well as it turns out, it is a big problem. In fact, it is a world-ending problem[7]; however, that’s not immediately apparent when the machine is just starting up. It takes a while to show up, so let’s skip ahead and take a look at Joe a year later to see what’s happened with his plan to accumulate labor. It’s not difficult to imagine. After a year of charging more than the true labor value of his bread, Joe will have accumulated a bunch of extra labor.

How much?

Well, if he charges three times the actual labor cost for his bread, at the end of the year he is going to have accumulated twice as much labor as he actually put into his business. If a typical person expends 1,500 units a year then Joe, having charged everybody triple the cost of the bread will be in the black by some 3,000 labor units, instead of having a balance close to zero at the end of the year as he would if he wasn’t accumulating labor.

Wow!

That’s very cool for baker Joe and it’s even cooler when you realize what he can do with all that accumulated labor.

Power

And once again, it is not rocket science.

Take a good look at that dollar bill in your wallet. Remember the nature of money. Money is a container for labor, and when it’s accumulated, money has the ability to command (i.e. buy) other people’s labor. Pause and think about it for a moment, because this extra money gives baker Joe an incredible amount of real, palpable, and measurable power. Really, the possibilities are endless for our newly wealthy baker man. With the extra 3,000 units of labor he can do whatever he wants. He can take an extended vacation, he can have a bigger house made for himself, he can even employ a house cleaner to clean his home, or an assistant to do his baking for him so he no longer has to work! How cool is that? And, since the money in his pocket represents abstract labor time, as long as he can find someone willing to work for the cash, Joe can do whatever he wants.[8] More importantly, he can do more than anybody else around him. He now has power that others do not have.

“It’s brilliant,” thinks Joe when he pauses at year-end accounting to consider the benefits and ethics of it all. He looks up from his books, he looks around at the world, and he realizes, he is now a bit different from everybody else around him. Because he thought to charge a little extra for his bread, at the end of a year he now has power and capability that no one else has.

“But is that wrong?” he asks himself.

“Nobody seems to have gotten hurt and”, as far as he can see, “nothing seems to have changed in the wider society.”

“So what’s the harm,” he decides.

“Really,” he says to himself, “the only problem that I have now is how to use this extra labor power.” Joe thinks about it and after some consideration, he decides to spend the extra labor units he has accumulated on a beautiful mansion, twice the size of all the other houses around him, on the top of a local hill, overlooking his little community. Of course, it’s not something he could have done a year earlier. Before he started his little accumulation experiment, he wouldn’t have had the money to pay for the extra materials, labor time, or extra effort required to haul the materials up the hill. Now he can! Now Joe’s got the cash and so now he builds a beautiful house on the top of the hill…and that is when his community starts to notice.

That is when the questions start.

“Hey Mr. Baker Man, what the heck’s going on?” ask his friends.

“How did you manage to build that big house?” they ask him.

The questions stop him in his tracks.

Now he’s got a choice.

What’s he going to do?

Is he going to come clean and reveal the (real) secret to his success (i.e. that he is charging more for his bread than it is actually worth) or is he going to hide the truth so that he can keep accumulating labor? He thinks about coming clean but to be honest with himself, he doesn’t like the implications. He figures if he comes clean, the jig is up and his free ride is over. After all, nobody in his community is going to stand by and let him overcharge for his bread. Not only that, but he suspects that his community will be a little pissed at him. Heck, they may even demand restitution and that would suck, thinks baker Joe. Paying back 3,000 units of labor would mean he’d have to sell his house, or work triple time over the next year. And besides, he thinks, despite their questions no harm has come from it. Everything (and everybody) is still working and despite some minor grumbling, everybody is still happy.

“So what if I’ve got a bigger house than everybody else?” he asks himself.

“Where is the harm in that?”

—

* To find out what Baker Joe does, all the problems it eventually causes, and how to solve the growing global financial crises (of which Greece is only a harbinger, read Rocket Scientists’ Guide to Money and the Economy

Endnotes

[1] See www.thespiritwiki.com/Barter

[2] www.thespiritwiki.com/Labour_Time

[3] www.thespiritwiki.com/Economy

[4] www.thespiritwiki.com/Official_Economy

[5] www.thespiritwiki.com/Informal_Economy

[6] This is not quite true of course, but the problems associated with accumulation are not as pronounced in economies that are not monetized, or that are not monetized to the extent that the current global economy is monetized. In fact in barter based economies, accumulation tends to be discouraged. See for example the native practice of Potlatch were the goal is to give away as many things as you can. See http://en.wikipedia.org/wiki/Potlatch

[7] By “world ending” I literally mean “world ending.” The dynamic that is set up by the initiation of accumulation leads, if left unchecked and in place, to the inevitable end of human civilization. The pressure on the environment, the anger and desperation that it causes leads, in the long run, to the collapse of human civilization. These might seem like strong words now, but it will become quite obvious to you that accumulation does lead to the end of the human world once you read through to the end of this little pamphlet.

[8] Interestingly enough, power doesn’t necessarily enter into monetary relationships. Assuming equality of conditions (i.e. I have all the money I need and you have all the money you need), power cannot enter the equation because if you ask me to do something I do not want to do, I don’t have to do it because I have enough money. However, if for some reason I need your money, if I am unemployed, if I am broke, if my bank account is drained by interest, if I need to feed and protect my kids, or keep a roof over my head, and you control the money, then you have the power. If you ask me to do something then, because I need the money you have, I will often do things I would not even think of doing if I didn’t need the money. You may want to think about prostitution and pornography in these terms, as well as other less than appealing occupations. Even think about the job you are doing now. Do you love what you do? If not, why do you do it? And if you had enough money to do what you wanted to do, what would you do instead? It’s an awesome question to ask because it gives you an indication of what life would be like in a properly monetized economy. If an economy is properly monetized (i.e. if money hasn’t been greedily extracted to the point where there is not enough money to go around), a lot of jobs that people currently do would no longer exist because we wouldn’t be forced to do them. This is something to keep in mind as we wend our way through this short economic treatise.

Cite This Article

Michael Sharp (2015). The Greek Financial Crises – What is Money. The Socjourn. [http://www.sociology.org/the-greek-financial-crises-what-is-money/]

By: Dr. S.

What is money? And what’s going on in the world today? In this amazing and accessible revelation by Dr. S., find out about money, the economy, accumulation, and debt! Find out why Greece is in such dire straights, why the world is getting worse every day, and what we the people of planet Earth (rich or poor, high or low) need to do about it before it’s too late.

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